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“I recently spoke to a founder
of one of the [Venture Capital] firms that is in the top 2%. I
asked him how much much he talked to his entrepreneurs. What this
VC told me I’ll never forget:

It was one of the most humbling things in my career: the
entrepreneurs who made me the most money are the ones that never
called me back.

“There is this idea that some VCs have that they are really hands
on, and are really helpful to their entrepreneurs. The problem is
the adverse selection of entrepreneurs who need the help are
precisely the ones a VC should not want to back. The top 2% have
this amazing ability to win the great deal, followed by the
humility to recognize they may or may not need to put their
handwriting on what transpires from there.

“Dear Dumb VC, it’s so painful to sit in meetings with you and
hear your vision for what the company should do and what’s going
to happen in the industry. Just so you know, Dumb VC, the top 2%
never do this. They’re too busy using their superb judgment
getting into great deals and bowing out graciously from the ones
they don’t want to back. Once they’re in, they’re spending their
time making game-changing introductions and subtle suggestions,
because they are so absorbed by all the great deals they are in
that they don’t have time to waste on white board sessions which
don’t create any value anyway.”

Venture Capital would appear to be a very different business than
trading.

Yet consider the striking similarities:

Top VCs focus on world-class startup investments that practically
take care of themselves.
Mediocre VCs expend great energy trying to finesse their mediocre
/ crappy investments.

Top traders focus on positions that all but “take care of
themselves” after entry.
Mediocre traders expend great energy trying to massage and
finesse their mediocre trades.

Top VCs “bow out graciously” from deals they don’t want to
back.
Mediocre VCs blather on about their vision for making a silk
purse from a sow’s ear.

Top traders maintain a laser-like focus on finding and
exploiting high quality opportunities.
Mediocre traders are far more willing to squander capital on MOTR
(Middle Of The Road) bets.

“Great Deals” are to Top VCs as “Great Trades” are to Great
Traders. The emphasis is on researching and exploiting
the best ideas and letting mediocrity fall by the wayside.

(This highlights the chief problem with Wall Street research by
the way. Whole forests are chopped down to disseminate b.s.
research reports that say “such and such might be a good
investment,” or company XYZ is a “reasonably attractive” growth
and income play. Who’s got time for that wishy-washy Charlie
Brown crap? Great traders sure as hell don’t…)

Once a great trade is on, it still needs to be “managed” — just
as a VC investment — but from a position of strength, not
weakness. Deciding when to book partial profits… or when to
pyramid… or both… is a very different matter than trying to put
lipstick on a pig by “hedging it” somehow or giving it “more
room” to stop being a sucky trade.

The nice thing about trading, in comparison to Venture Capital,
is you don’t need a deep Silicon Valley network to put a great
position on. Venture Capital is a relationship business. Trading
is research driven and quite often a “lone hand” business. The
market doesn’t care who you are, or who you have on speed dial,
if you took the time and effort to ferret out a great
opportunity, showed the patience to wait for a high quality entry
point, and then had the guts to size it right.

Do you waste time and energy (mental energy being a precious
resource too) trying to “massage” or otherwise rationalize
mediocre trades in your portfolio? Or do you cull your weak
holdings ruthlessly, to conserve energy and capital for targeting
and exploiting the truly great trades?